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Tuesday, May 30, 2017

Lower markets after Trump returns from his overseas trip

Dow dropped 53, decliners over advancers more than 2-1 & NAZ lost 3. The MLP index fell 2+ to the 303s & the REIT index was fractionally lower to the 345s. Junk bond funds slid back & Treasuries had a minor advance. Oil fell in the 49s & gold was sold.

The consumer is on track for a second-quarter comeback after a weak
stretch at the start of the year, as Americans kept up spending in line
with income gains in Apr, Commerce Dept figures show. Purchases increased 0.4% m/m (matching the est.), the most since Dec, after 0.3% rise in Mar. Incomes rose 0.4% m/m (matching est.) after 0.2% gain. Price gauge tied to consumption rose 0.2% m/m (matching est.), rose 1.7% y/y (matching est.). Excluding food & energy, prices rose 0.2% m/m (est. 0.1% rise), rose 1.5% y/y (matching est.). The pickup in nominal consumer purchases shows Americans appear more
eager to spend in Q2 following the weakest gains since
2009 in the Jan-Mar period. Household balance sheets that have
been strengthening with a tightening labor market & rising wages
should help buoy spending as the broader economy gains momentum. Wages & salaries rose 0.7% from the previous month, matching the
fastest gain in a year. While Fed policy makers
should take some comfort that the results were in line with forecasts & core prices exceeded estimates, their preferred inflation gauge did
slow down on a year-over-year basis, slipping slightly further away from
the 2% annual target. The central bank is expected to raise
interest rates at the Jun meeting, though a sustained slowdown in
inflation could delay another hike this year. Spending on goods rose 0.7% after adjusting for inflation, up from 0.3% gain in Mar. Disposable income rose 0.2% after adjusting for inflation.

A larger-than-forecast increase in home prices in 20 US cities in
Mar underscores both steady demand & lean inventory, figures from
S&P CoreLogic Case-Shiller showed. 20-city property values index rose 5.9% from Mar 2016 (forecast 5.7%), matching Feb as biggest since Jul 2014. National price gauge climbed 5.8% in the 12 months thru Mar. Seasonally adjusted 20-city index rose 0.9% from a month earlier (matching forecast). Mortgage rates at a 6-month low, along with a strong job market &
healthier finances, are giving prospective buyers more wherewithal to
make purchases. In addition to rising demand, persistent inventory
shortages in the previously owned property market are also contributing
to price gains. At the same time, wage growth has been slower to pick up
than property values, representing a potential headwind to even faster
price gains. “While there is some regional
variation, prices are rising across the U.S.,” David Blitzer, chairman
of the S&P index committee, said. The gain reflected
“unusually low inventory of homes for sale.” He added “there is no way to
tell when rising prices and mortgage rates will force a slowdown in
housing.”

German inflation slowed in May, underpinning recent comments from ECB officials that the 19-nation bloc still needs extraordinary monetary stimulus. The
rate dropped to 1.4% in May from 2% in Apr, sharper
than the decline to 1.5% predicted.
Inflation in the euro area, due tomorrow, is forecast to have cooled to
1.5%, though the German data means there's now a risk of a
weaker reading. While inflation rates have risen sharply across the continent since
late last year, policy makers have cautioned that increases are driven
largely by energy costs & not yet self-sustained. Still, with the economy growing solidly,
speculation has mounted among investors about how the ECB's stimulus
efforts will eventually be unwound. Euro-area
consumer-price growth probably decelerated to 1.5% this month
from 1.9% predicted for Apr. Spain's inflation rate fell more than
forecast in May, dropping to 2% from 2.6%. The ECB’s Governing Council will gather next week for one
of its regular meetings. ECB Pres Mario Draghi has
tried to downplay expectations of a major shift & used an appearance
in European Parliament yesterday to argue that accommodative policy,
negative interest rates and a €2.3T ($2.6T)
asset-purchase program, must be maintained. “Domestic cost pressures, notably from wages, are still
insufficient to support a durable and self-sustaining convergence of
inflation toward our medium-term objective,” he said.

There is a little bit of profit taking after Trump is back in dysfunctional DC. Gossip about this & that is unsettling to some traders. Also, there is awareness that there is not much time left to pass legislation before Congress goes on its next break. Getting little attention, but very important, the debt ceiling must be raised to avoid a gov shutdown. That will involve one more bitter fight. Of course, healthcare & tax reform remain priorities. Bigger picture, stock averages are very near record highs with Dow hanging in above 21K.